Today I am excited to be flying cross-country to attend a Conference and Micro-Symposium on Competing Theories of Corporate Governance at UCLA Law, organized my my friend and Friend of Glom Professor Steve Bainbridge.
A "micro-symposium," for those not in the know, means that you write 750 words on the subject at hand. Which was a challenge, but also a lot of fun.
Looking forward to a great conversation about shareholder primacy, director primacy, and team production!
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Thanks, Usha, for the introduction. Let Us rule!
I am delighted to join The Conglomerate for a brief stint. I am an enthusiastic follower of the blog and an occasional commenter, so I am thrilled to have the microphone for the next two weeks.
I have some specific topics I plan to post about but I would like to start off the discussion with a meta question. I have been writing about securities law and going to conferences for a few years, inlcuding those of the law & economics variety. At these events, I often cross paths with tax professors, and I have noticed one curious difference between tax and corporate & securities folk: tax professors like tax collectors. Overwhelmingly so. They recognize that the IRS is not perfect, but when in doubt, they generally side with the IRS, not taxpayers.
Not so for corporate and securities professors. At every milestone anniversary of the creation of the SEC someone proposes that the Commission be abolished. So I am wondering why? It could be that my samples are biased. Or it could be that both sets of people like regulators, but corporate & securities people are just grumpier and less likely to express nice things about securities regulators. Or perhaps the difference is real.
Whatever the reason, I am going to reveal my personal bias here: I like securities regulators. That does not imply that I love every idea that comes out of the SEC. But as between the regulated entities and the SEC, my default is to side with the securities regulator. What is yours?
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The National Business Law Scholars Conference (NBLSC) will be held on Thursday, June 19th and Friday, June 20th at Loyola Law School, Los Angeles. This is the fifth annual meeting of the NBLSC, a conference which annually draws together dozens of legal scholars from across the United States and around the world. We welcome all scholarly submissions relating to business law. Presentations should focus on research appropriate for publication in academic journals, especially law reviews, and should make a contribution to the existing scholarly literature. We will attempt to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate.
To submit a presentation, email Professor Eric C. Chaffee at [email protected] with an abstract or paper by April 4, 2014. Please title the email “NBLSC Submission – {Name}”. If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.” Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late May. More information is available here: http://lls.edu/resources/events/listofevents/eventtitle,81539,en.html
Conference Organizers
Barbara Black (The University of Cincinnati College of Law)
Eric C. Chaffee (The University of Toledo College of Law)
Steven M. Davidoff (The Ohio State University Moritz College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia Law)
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My blogging has been a bit light lately, as I've been scrambling to finish working on a paper for what looks to be a great conference: The Securities Act of 1933 at 80: Does It Provide a Fair and Efficient Access to Capital? The paper is on post-JOBS IPOs, and I will try to post some data and observations after the conference.
I look forward to seeing some Masters (Joan Heminway, Don Langevoort) and friends of Glom (Bob Thompson) in beautiful Lexington, KY. And now, I'm going to see a man about a horse.
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For those of you going through the FAR conference this Fall or thinking about it in the near future, here is information on the upcoming Arizona State Aspiring Law Professors Conference. I'll be there!
5th Annual
Aspiring Law Professors Conference
Sandra Day O’Connor College of Law at ASU
On Saturday September 28, 2013 ASU will be hosting its 5th annual Aspiring Law Professors’ Conference. The conference website has more information but the conference is:
Designed for Visiting Assistant Professors, Fellows and others who plan to go on the academic teaching market,
but valuable to anyone considering a career as a law professor.
Attendees will:
- Learn to succeed in the entry-level law
teaching market - Obtain an insider’s perspective on the
appointments process from faculty with extensive hiring experience - Those going on the market this year may participate
in a mock interview and/or mock job talk and gain feedback from experienced
faculty
Delivering this year’s keynote address is Christine Hurt, Illinois law professor, Co-Director of the Program in Business Law & Policy, and well-known contributor to The Conglomerate blog. Also in attendance will be the Deans of ASU and UofA as well as number of faculty from other institutions who participated in prior years of the conference.
The Aspiring Law Professors’ Conference is being offered free of charge to all attendees and will take most of the day on the 28th. We have reserved some hotel rooms—but space is limited so please register soon! And, for former attendees who are now teaching, please email Doug Sylvester ([email protected])—we are interested in hearing your stories and, if you are interested, having you come and help educate the next generation of potential scholars.
Just out today, here's a link to one of my projects for my semester "off": Vanderbilt Law Review asked me to contribute to an online symposium offering advice for the SEC in its JOBS Act rulemaking. There's no abstract, but here's my opener:
Watch enough late night television and you’ll see advertisements for weight-loss elixirs, hair restoratives, and cures for ailments you never dreamed existed. Imagine, if you will, yet another huckster, this one touting PrivateDeal, a “never-before-available investment opportunity, the chance of a lifetime! Get in on the ground floor of a start-up boasting triple-digit growth!” The PrivateDeal hawker goes on to declare: “This investment was previously only available to the ultrarich, but now, thanks to recent developments in the law, it can be yours!”
Jim, an intrigued investor, calls the 800 number on the bottom of his screen, expecting to encounter an operator ready to take his credit card information. Instead, he gets an agent who starts peppering him with questions about his income and net worth. Gradually it dawns on Jim that he may not be able to invest in PrivateDeal after all. Indeed, five minutes into the conversation, the agent confirms that he is not qualified to invest.
“But. . .why. . .” Jim begins to splutter.
“Sir,” the agent explains patiently—Jim senses she has started this speech many times already tonight—“The fine print in the ad specifies that only accredited investors are eligible to buy shares in PrivateDeal.”
To which Jim responds: “Well, what’s an accredited investor?”
Welcome to post-JOBS Act private investing.
As you can tell, I had fun with the piece--my opening might (or might not) have been the product of bad late night television that I may (or may not) have been watching while up feeding my small one. I reveled in the freedom of the hybrid blogpost/essay form. I've done a few of these short online pieces for law reviews (here on SPACs for the Harvard Business Law Review), here for the Texas Law Review to respond to a Brian Galle article, and I've found each to be quite satisfying. I welcome the opportunity to produce timely, easy-to-digest morsels of scholarship.
Let me know what you think of the piece, and head over to Vanderbilt Law Review's website to check out offerings from my friends Andrew Schwartz of Colorado Law and Doug Ellenoff, a practitioner whom I met in the course of my SPAC research.
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The University of Illinois College of Law and the University of Richmond School of Law invite submissions for the First Annual Workshop for Corporate & Securities Litigation. This workshop will be held on Friday, November 8, 2013, in Chicago, Illinois.
OVERVIEW: This annual workshop will bring together scholars focused on corporate and securities litigation to present their works-in-progress. Papers addressing any aspect of corporate and securities litigation or enforcement are eligible. Appropriate topics include, but are not limited to, securities litigation, fiduciary duty litigation, or comparative approaches to business litigation. We welcome scholars working in a variety of methodologies, including empirical analysis, law and economics, law and sociology, and traditional doctrinal analysis. Authors whose papers are selected will be invited to present their work at a workshop hosted by the University of Illinois College of Law in Chicago, Illinois, on Friday November 8, 2013. Local costs (lodging and workshop meals) will be covered. Participants are asked to pay for their own travel expenses. The workshop is designed to maximize discussion and feedback. All participants will have read the selected papers. The author will provide a brief introduction to the paper, but the majority of the individual sessions will be devoted to collective discussion of the paper involved.
SUBMISSION PROCEDURE: If you are interested in participating, please send an abstract of the paper you would like to present to Jessica Erickson at [email protected] not later than Friday, May 31, 2013. Please include your name, current position, and contact information in the e-mail accompanying the submission. Authors of accepted papers will be notified by Friday, June 28.
QUESTIONS: Any questions concerning the workshop should be directed to the organizers—Professor Verity Winship ([email protected]) and Professor Jessica Erickson ([email protected]).
From my colleagues at the University of Illinois:
The University of Illinois College of Law and the Illinois Program on Law, Behavior & Social Science are hosting the Twelfth Annual Midwest Law & Economics Association on October 11 & 12, 2013 in Champaign, Illinois. Participants need not be an economist, a Midwesterner, or a Midwestern economist. The event consists of law professors and economists presenting papers with varying degrees of law-and-economics content, ranging from empirical analyses and formal economic modeling to legal philosophy and doctrinal papers infused with economic thinking. Presentations will begin Friday morning and end early- to mid-afternoon on Saturday. There is no membership fee or registration fee, but participants should expect to pay their own expenses. A block of rooms at the iHotel has been reserved for conference participants.
To submit a presentation, e-mail Robert Lawless at [email protected] with an abstract or paper by August 1, 2013. Presentation invitations will be sent out by August 15, 2013. A conference schedule and RSVP information for conference meals will be circulated closer to the conference date. Hotel contact info will be posted at this web page soon. Submission is open to all, so feel free to share this announcement with colleagues.
The website is here.
Elizabeth Trujillo, Jason Yackee, Sonia Rolland, and yours truly are the new leadership of the American Society of International Law's International Economic Law Group, Sonia and I in the vice-chair role. So hurrah and all that.
The historiography of this group is a bit different from that of the usual business law outfits. Corporate and securities regulation academics have been thinking about Delaware and the SEC for a very long time, and it seems to me that the new areas of research - executive compensation, what to do about private equity, and so on - fit within the Delaware and SEC framework. International economic law meant, until about 2000, one thing, and one thing only: the WTO (well, maybe also letters of credit, not that there's a lot of research on that). Then it meant two things that don't really overlap - the WTO and investment arbitration. Now there is a third group of financial regulation scholars in the mix, and the next emerging outfit will likely be one focusing on debt instruments. So what you see on the committees, and at the conferences, are trade specialists, investment specialists, and financial regulatory specialists, with sovereign debt to come. It isn't easy to knit those research interests together. But that is why we have the IELG.
So I'm excited to add VCASILIELG to my already impressive acronymic title roster (see also CCABAALSILC)
Anyway, the official announcement follows.
Elizabeth Trujillo from Suffolk University Law School and Jason Yackee from University of Wisconsin School of Law have been elected to be Co-Chairs of the International Economic Law Interest Group for ASIL. Jason and Elizabeth are stepping in after 2 years as being Co-Vice Chairs under the wonderful leadership of Sungjoon Cho and Claire Kelly. New Co-Vice-Chairs are David Zaring and Sonia Rolland. The election took place at the ASIL-IEcLIG Biennial conference held at George Washington Law School in Washington DC on Nov. 29-Dec. 1, 2012. The new leadership will be assuming their positions at the ASIL 2013 Annual Meeting in April. The ASIL-IEcLIG Biennial, in cooperation with George Washington University School of Law and the Federal Trade Commission, was on "Re-Conceptualizing International Economic Law: Bridging the Public/Private Divide." Keynote speakers included Professor Ralph Steinhardt from GW Law School, the Honorable Donald C. Pogue, Chief Judge United States Court of International Trade, and Amelia Porges from the Law Offices of Amelia Porges. There were over 100 registered participants from all over the world including the U.S., Europe, Latin America, New Zealand, and Asia.
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I just returned from speaking at a panel at the Clearing House’s Annual Meeting in New York that focused on the regulation of shadow banking. My fellow panelists included Amias Gerety (Deputy Assistant Secretary for Financial Stability, U.S. Dept. of Treasury), Ed Greene (Senior Counsel, Cleary Gottlieb), Sandy Krieger (Executive Vice President, FRBNY), and Barney Reynolds (Moderator, Shearman & Sterling).
Our first bone of contention was whether shadow banking is actually a useful concept for financial regulation. I think it is, as I have written elsewhere. Shadow banking describes how a series of financial instruments, markets, and institutions came to perform the same economic functions as banks:
- credit intermediation/credit risk transfer,
- maturity transformation, and
- liquidity transformation (i.e. creating money-like instruments that have theoretically high liquidity and low credit risk) (see Morgan Ricks).
We discussed several of these instruments and institutions at the panel including: securitization, money market funds, repos, and prime brokerage. These markets not only performed similar economic functions as banks, in the Panic of 2007-08, they also suffered runs and solvency crises just like banks.
In response, the federal government refashioned some of the same conceptual tools historically used to address banking crisis to staunch a shadow banking crisis. What, after all, was TARP and the alphabet soup of Federal Reserve liquidity facilities other than the government:
- acting as lender-of-last resort,
- providing deposit insurance to investors in shadow banking markets, and
- resolving institutions that failed because of shadow banking investments (albeit resolution without wiping out existing shareholders).
So if it quacks like a bank, suffers runs like a bank, and is saved like a bank, it needs to be regulated like a bank.
The difficulty is how to narrowly tailor bank-like regulations (from capital requirements to liquidity regulations) to address the specific forms of risk posed by each kind of shadow market. As I put it, you don’t regulate a turkey the same as a duck or a chicken. This turducken problem led some of my co-panelists to believe a bottom-up approach to regulation (one that focuses on market failures of individual instruments) makes more sense than a top-down approach (starting with the conceptual problems of shadow banking and then figuring out how to tailor policy approaches to particular contexts).
I continue to think a top-down approach helps focus on what are the big picture market failures and systemic risks that we should care about – bank runs and liquidity crises; high leverage; and correlated risk-taking and herd behavior by financial institutions.
Here were my takeaway points from a great panel discussion:
- Size matters, but it ain’t the only thing: the Too-Big-To-Fail problem has obscured the dangers of many smaller financial institutions moving as a herd.
- The FSOC’s power to designate certain institutions as systemically significant, however has asset size as a threshold. It cannot subject an entire class of institutions or instruments to systemic regulation by the Fed.
- This means that FSOC must deal with the danger of herd behavior or the systemic risk posed by smaller institutions through its recommendation power. The FSOC’s recent proposed proposals on money market reform will provide a test of this power.
- One oft-overlooked problem is how securitization did not effectively transfer risk, because the financial institutions that securitized assets also purchased asset-backed securities. This daisy chain meant that much risk stayed within the regulated banking system.
- Why did so much risk stay within the system? In part, this occurred because shadow banking instruments (particularly securitization, asset-backed commercial paper, and repos) were increasingly used not to transfer credit risk but to game bank capital requirements (aka “regulatory capital arbitrage”).
The bottom-up approach may also obscure a couple of key problems, including:
- These markets – from securitization to repos to money market funds – have been tightly connected. For example, asset-backed securities often “collateralized” repo loans. Money market funds invested in asset-backed commercial paper and repo markets. A focus on instruments means less attention is given to the network as a whole.
- If you want to regulate a network, you focus on the hubs. Who were at the hubs of the shadow banking network? Investment banks! They have their finger in every shadow banking pot, including via:
- Securitizing assets off their own balance sheet;
- Sponsoring securitizations and underwriting asset-backed securities;
- Purchasing asset-backed securities;
- Borrowing through repos...
I could go on – the whole business of investment banks is to “make markets” and serve as the intermediary of a web of transactions. Focusing exclusively on instruments means we may overlook the role of critical institutions in making the plumbing of shadow banking work.
- Perhaps the greatest myth of the shadow banking system is that only unregulated entities were involved. In fact, regulated entities were deeply involved. Banks securitized assets off their balance sheets. Banks, investment banks, insurance companies, and a host of other institutional investors purchased asset-backed securities. They also issued securities that were bought by money-market funds, which, in turn, are regulated by the SEC.
- Indeed, the real sweet spot of the crisis, came not with heavily regulated institutions or unregulated institutions (like hedge funds), but less regulated affiliates of heavily regulated entities. Think AIG’s London affiliate that wrote all those credit derivatives or Bear Stearns’ hedge funds. These examples indicate that conglomerates were playing games to transfer the benefits of government guarantees (explicit or implicit) and other subsidies from regulated to less-regulated affiliates.
- In many cases, it was not a lack of regulation that caused shadow banking to flourish, but the presence of regulation. In other words, Congress and regulators often granted preferences that allowed the markets for various shadow banking instruments to flourish. For example, Congress exempted repos (and later swaps) from various bankruptcy rules. (see Roe) Or, to pick a hot topic, consider the 1983 SEC rule change that allowed money market funds to price their shares at a fixed Net Asset Value, which made these investments appear more safe and bank-deposit-like. (see Birdthistle).
Shadow banking provides a vital conceptual framework to remind policymakers why and what they should regulate. It also provides a field guide to studying new financial instruments. When new financial innovations arise, when should financial regulators take heed and what should they watch for.
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David and I presented at a great financial regulation workshop at Brooklyn Law School on Friday. Many thanks to Claire Kelly and Roberta Karmel for putting together a great program (particulary during a few extraordinary weeks in Brooklyn).
Among the doom and gloom at the conference: banks are taking on unknown amounts of commodities risk, coco bonds and TRUPs aren’t all they are cracked up to be, and auditors make lousy agents for financial regulators.
Among the bright spots: there may be better ways to fix the tax incentives for financial institution leverage, and the Volcker Rule may offer opportunities to address the market structure for OTC swaps markets.
Illuminated: why EU counties and other went gaga over collective action clauses in sovereign debt, what international financial regulation can teach international public law, and new insights into the corporate governance role of credit derivatives.
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With the earlybird registration deadline for the AALS Annual Meeting in New Orleans two days away, here are two events to put on your calendar:
Friday, January 4th: Joint Program of the Securities Regulation and FInancial Institutions/Consumer Financial Services Section [AALS Code 4160]
The Securities Regulation and Financial Institutions & Consumer Financial Services sections have joined forces to put together a Joint Program on the “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets” on Friday, January 4th from 2 pm to 5 pm.
The program will give us a chance to look at the intersection of capital markets and financial institution regulation, a sweet spot that was overlooked until the global financial crisis hit. The program will include a panel of scholars who have been looking at this intersection for quite a while, including, Onnig Dombalagian (Tulane), Claire Hill (Minnesota), Tamar Frankel (Boston University), Donald Langevoort(Georgetown), Geoffrey Miller (NYU), David Zaring (Univ. of Pennsylvania – Wharton School of Business),David Min (UC Irvine and author of How Government Guarantees in Housing Finance Promote Stability) and Kimberly Krawiec (Duke) (Moderator).
The program will also include the following four papers picked from a large response to our Call for Papers:
- “The Federal Reserve’s Use of International Swap Lines,” Colleen M. Baker (Notre Dame);
- “Investment Company as Instrument: The Limitations of the Corporate Governance Regulatory Paradigm,” Anita K. Krug (Univ. of Washington); and
- “The Case for Decentralizing Financial Oversight: A Strategy for Overseeing the Derivatives Industry,” Jeffrey Manns (George Washington Univ.).
Saule Omarova (North Carolina) will moderate the call for papers panel.
Saturday, January 5th: Financial Institutions/Consumer Financial Services Lunch [AALS Code 1413]
Our keynote speaker will be Michael Barr of the University of Michigan Law School. Professor Barr returned to Michigan after serving as Assistant Secretary for Financial Institutions at the U.S. Department of Treasury in the Obama Administration. Professor Barr was one of the architects of the Dodd-Frank Act. Anna Gelpern (American Univ.) will introduce Professor Barr.
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Having left a blizzard in Utah, I am sitting in sunny LA at the inaugural UCLA Junior Business Law Faculty Forum. The inimitable Steve Bainbridge has assembled a great group of papers and commentators, and I am very much looking forward to the next two days.
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The latest edition of The Economist has a fascinating article on “Chilecon Valley” that discusses the emergence of a startup community in Chile. The article focuses on a unique program of Startup Chile (a new Chilean governmental body) that gives grants to entrepreneurs in the United States and elsewhere to move to Chile for several months as they work on building their company and developing their technology. The grant recipients are then expected to network with, speak to, and mentor Chilean entrepreneurs.
The article touches on how law can foster or hinder the growth of a startup community, including by liberalizing immigration laws and allowing failed ventures to get a fresh start in bankruptcy.
Chile is making considerable efforts to diversify its economy beyond extractive industries like mining and agriculture. My spouse is co-organizing a fantastic three-day conference in Santiago from November 28 to December 1st that will focus on social entrepreneurship, sustainability, and innovation. The conference includes a fantastic line-up of speakers, including a keynote address by Al Gore, a pitch competition for social entrepreneurship startup companies, and some awesome music, including Devendra Banhart and Denver’s own Devotchka. Several panels will analyze the contribution of law to developing a entrepreneurial ecosystem in Chile.
You can check out my wife’s newly launched blog and website on the Chilean startup community here.
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It is not too early to start thinking about the 2013 AALS Annual Meeting in New Orleans in January. The Securities Regulation and Financial Institutions & Consumer Financial Services sections have joined forces to put together a Joint Program on the “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets” on Friday, January 4th from 2 pm to 5 pm.
The program will give us a chance to look at the intersection of capital markets and financial institution regulation, a sweet spot that was overlooked until the global financial crisis hit. The program will include a panel of scholars who have been looking at this intersection for quite a while, including, Onnig Dombalagian (Tulane), Claire Hill (Minnesota), Tamar Frankel (Boston University), Donald Langevoort (Georgetown), Geoffrey Miller (NYU), David Zaring (Univ. of Pennsylvania – Wharton School of Business), David Min (UC Irvine and author of How Government Guarantees in Housing Finance Promote Stability) and Kimberly Krawiec (Duke) (Moderator).
The program will also include the following four papers picked from a large response to our Call for Papers:
- “The Federal Reserve’s Use of International Swap Lines,” Colleen M. Baker (Notre Dame);
- “Investment Company as Instrument: The Limitations of the Corporate Governance Regulatory Paradigm,” Anita K. Krug (Univ. of Washington); and
- “The Case for Decentralizing Financial Oversight: A Strategy for Overseeing the Derivatives Industry,” Jeffrey Manns (George Washington Univ.).
Saule Omarova (North Carolina) will moderate the call for papers panel.
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